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Committee approves changes to interest rate policy for service scholarship repayments in Senate Bill 50
Summary
The Kansas House Committee on Education advanced Senate Bill 50 with an amendment making the interest rate for service scholarship repayment equal to the Federal PLUS loan rate at the time the repayment agreement is signed; an amendment to make interest accrue from the original disbursement date failed 5-12.
The House Committee on Education voted to advance Senate Bill 50 as amended, replacing a fixed 5 percentage-point add-on with an interest rate tied to the federal PLUS loan rate at the time an individual signs a repayment agreement.
The measure, discussed at length in committee, governs repayment terms for multiple state service scholarship programs. Committee Chair (unnamed) opened deliberations after staff provided background and Vice President Elaine Frisbie, representing the Kansas State Department of Education, summarized program data and historical practices.
Frisbie told the committee that 434 individuals are currently in repayment status under the state's service scholarship programs and that 227 of those people are in collections. She provided example account histories: a teacher service scholarship recipient who received a $5,000 award now has a payoff of about $12,770 due to accrued interest; a nursing scholarship recipient who received $5,000 now owes more than $17,000; a more recent recipient who received $11,896 currently owes $14,569. Michelle Arellano, identified in committee as Director of Financial Aid, and staff helped answer procedural and technical questions.
Representative Pichney offered and Representative Hubert seconded an amendment to tie the scholarship repayment interest rate to the federal PLUS loan rate as of the date the individual enters the repayment agreement, instead of a fixed 5 percentage-point add-on. Jason Long (Revisor) explained the amendment would lock the rate for each borrower at the time the repayment agreement is executed. Committee members and staff noted that other states take a variety of approaches: some states peg repayment programs to a 5% revolving-loan precedent (Perkins), some set 0% for parts of their programs, and Minnesota finances scholarships via revenue bonds.
Representative McNorton later offered an amendment to change the accrual date so interest would begin on the date funds were first disbursed to a student rather than the date the borrower enters repayment. Revisor Long explained the effect would be that if a student received funds and later defaulted, interest would be calculated back to the disbursement date and apply to the full award amount if the full award became due. Committee members debated the fairness and consequences for students who had tried to serve but left for reasons committee members described as "extenuating circumstances." Vice President Frisbie said the agencies have administrative flexibility to grant relief in dire circumstances but that the proposed change would standardize when interest begins to accrue.
The accrual-date amendment failed on a recorded hand-count, 5 in favor and 12 opposed. The rate amendment tying the scholarship rate to the federal PLUS rate was adopted on a voice vote. With that amendment in place, Representative Hubert moved to pass Senate Bill 50 as amended; the committee passed the bill on a subsequent voice vote.
Committee members asked several operational questions that staff answered: the state uses several tools to collect delinquent scholarship repayments, including collections and setoffs against state tax refunds, and delinquencies may affect credit reporting. The fiscal note referenced by Representative Featherston described the bill as having a negligible fiscal effect on agency operations.
What happens next: the committee advanced Senate Bill 50 to the full House calendar or subsequent House action, and if enacted as amended it will set the uniform repayment interest rate for the covered scholarship programs to the Federal PLUS loan rate in effect when each repayment agreement is executed. Details on implementation, waivers for extenuating circumstances and precise accounting were discussed but will be governed by implementing agency procedures.
Votes at a glance: the accrual-date amendment (to make interest accrue from original disbursement) failed, recorded hand-count 5 yes, 12 no. The rate amendment (tie to Federal PLUS rate) passed by voice vote. The final motion to pass Senate Bill 50 as amended passed by voice vote.
